Belgian National Bank Governor Gets It: Bailing Out Spain "Makes No Sense"

Tyler Durden's picture

A week ago we explained quite clearly why instead of encouraging self-defeating, short-termist behavior by promising to save Europe's insolvent countries if and when needed, which does nothing to resolves Europe's problems and make it worse in exchange for a brief respite from bond selling, the ECB should be doing precisely the opposite: encouraging local governments to understand that there is no magic bazooka from the central banks. Specifically we said that "this Catch 22 of confounding cause and event can continue seemingly indefinitely, although in reality it can't. Because fundamentally what the bond market does is keep sovereigns "honest" - just as Schauble said a week ago, Spanish yields at 7% are not the end of the world - instead what they are is a signal to the country to get its spending in control in order to reduce its deficit, and fundamentally get its house in order - yes, that means getting government spending to a sustainable level and firing hundreds of thousands of workers, as well as probably raising taxes even more. It also means pain all around, but the pain is inevitable and will only be worse the longer reality is denied." This logic is so clear that only a lifelong economist, PhD or Goldman apparatchik can not grasp it: sadly that accounts for most of the people "in charge."

Which is why we were delighted to read that at least one person "gets it" - Belgian national bank governor Luc Coene, the same Belgium that is also the clogged heart of the Burtonian bureaucratic labyrinth known as the EU, who told Belgium's two largest newspaper that "buying the bonds of these countries would only serve to weaken the ECB and do nothing to resolve underlying issues of competitiveness.  “It makes no sense for the ECB to start financing those countries,” said Mr Coene, “It would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet." Bingo. And not a moment too soon - we really were starting to pull a Mogatu here.

Telegraph has more:

"That would in turn weaken the ECB and do nothing to resolve the underlying problems."

 

Mr Coene also said that the central bank's efforts to calm markets last summer with around €135bn of additional debt purchases on the secondary market via its Securities Markets programme took away the pressure on politicians to act.

 

“We haven’t forgotten what happened in August of last year: We bought Italian bonds and right after that the Italian government reneged on its pledges," he said.

Actually your ex-Goldman Italian colleague over in Frankfurt has forgotten all about.

As for the punchline, which would have long been implemented, if only the total loss of (at least) one year of Goldman Sachs banker bonus was not at risk:

“The conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act.”

In the meantime, the total abortion that is the market, which no longer can discount anything due to the endless political meddling in its affairs, is starting to lose hope that Europe will be saved when Spain announces it is broke (let that sink in).

Spanish and Italian borrowing costs edged up on Friday, following a week of steady falls on hopes that Spanish PM Mariano Rajoy would make a formal request for EU aid, which would then trigger action from the ECB.

 

President Mario Draghi initially disappointed markets at his monthly press conference by reiterating that "the ECB cannot replace governments," and that countries would have to request assistance from the European Financial Stability Facility (EFSF) before the ECB could step in.

 

"Even if we were ready to act now, there would not be the grounds for doing so," he said.

We could say more, and get even angrier, but instead we will leave readers with a clip which, since last year, has captured the essence of Europe better than anything.